How will a ‘retail apocalypse’ affect your property investment?

Key takeaways

  • Online shopping is forcing retailers to cut jobs
  • Retail is one of the nations’ biggest employers
  • Closing stores may impact desirable locations

It’s summer, but on the minds of retailers, the focus is on the holidays. The upcoming holiday shopping season will be even more crucial as retail stores look for any signs of hope during these tumultuous times for the industry.

Unless you’ve been living under a rock (or refuse to shop online), you’ve probably seen a shift in retail. There’s been a lot of talk of a retail apocalypse as some of the biggest retailers in our nation close hundreds of stores. Retailers like Toys “R” Us, HHGregg, JC Penney, Macy’s, Sears, Abercrombie & Fitch, and Gap have been closing multiple locations. And while some retailers, like Dillard’s, have embraced a different approach to business, it’s difficult to escape the impact of online shopping.

“So, what’s it to me?” you might be asking.

If you own rental properties, the retail apocalypse could have an impact. You might not feel it right away, but it’s something to bear in mind.

Jobs, jobs, jobs

The biggest impact to any community watching its retail locations close up shop is the loss of retail jobs. In 2017 alone, more than 90,000 Americans were laid off from general merchandise stores. While many should find work in our community, others need to be retrained in a new industry. Some may even need to relocate. For those who cannot find new work, they may have difficulty maintaining their lease agreements. If that happens, the best-case scenario is they just run a month behind on their rent until finding something new.

Location, location, location

What used to be a desirable place to live could be less so if nearby shopping becomes scarce. People are very sensitive to their surroundings, and living in an area with empty, boarded up buildings isn’t high on the list of reliable tenants. And as the desirability of your location wanes, you may have to lower your rent rates.

Be mindful of your primary source of tenants. If a majority of your tenants work at nearby grocery stores or local retail establishments, be conservative when underwriting your deal. Buying a property that’s barely cash flow positive means there will be little wiggle room for raising rents. And the moment you have to drop your rent, things will get very difficult.

Find your tenants online

Like it or not, society is becoming more reliant on digital solutions for just about everything. The shift to online goes further than just retail shopping. Customers are turning to their desktops or mobile devices to research and shop. And they’re buying anything from homes and cars to medical services.

True, a savvy renter always drives around a neighborhood looking for rental signs, but they start their search online. As a real estate investor, you need to be on top of this. Be sure you are listing your rental properties on sites where your clients are hunting. Embrace digital advertising and learn to leverage SEO, as well as targeted ads with Google and Facebook.

Be sure to list your property on Zillow, Rentals.com, Trulia, Rent.com, and any local listing sites.